GFC 2007

2007: Home sales continue to fall. The plunge is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year nationwide decline since 1991. The subprime mortgage industry collapses. A surge of foreclosure activity (twice as bad as 2006) and rising interest rates threaten to depress prices further. Problems in the subprime markets spread to the near-prime and prime mortgage markets.

February 8 – HSBC: Europe’s biggest bank, HSBC Holdings, blames soured US subprime loans for its first-ever profit warning in February. On September 21, it announces the closure of its US subprime unit, Decision One Mortgage, and records an impairment charge of about $880 million.

February and March – more than 25 subprime lenders filed for bankruptcy

April 2 – New Century: The US subprime lender files for Chapter 11 bankruptcy protection in the biggest collapse of a mortgage lender in this crisis.

June 12 – Bear Stearns suspends redemptions from the 10-month-old High-Grade Structured Credit Strategies Enhanced Leverage Fund which as of Apr. 30, was down 23% for the quarter.

June 19 – Matthew Tannin, former investment bank Bear Stearns hedge fund manager, is escorted by law enforcement officials to a waiting car after being arrested in New York June 19, 2008, after a federal criminal probe into the collapse of funds he and fellow former hedge fund manger Ralph Cioffi oversaw, according to the Federal Bureau of Investigation. Source: Reuters

July – IKB & SachsenLB: Two banks in Germany, IKB and state bank SachsenLB, suffer exposure by investing in the US subprime market. The German banking industry bails out IKB, but SachsenLB almost goes under and is quickly sold to state-backed Landesbank Baden-Wuerttemberg (LBBW).

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” Charles Prince, CEO of CitiGroup told The Financial Times on 9 July.

August 9 – BNP Paribas: The French bank bars investors from redeeming cash in $2.2 billion worth of funds, telling the markets it is unable to calculate the value of the three funds due to turmoil in the subprime market.

August 9 – NIBC: The Dutch merchant bank discloses 137 million Euros ($189 million) of losses on US asset-backed securities in the first half, and shelves plans for an initial public offering indefinitely.

September 13 – Northern Rock: The British mortgage lender experiences a bank run following a credit crunch sparked by the subprime crisis. The Bank of England steps in to rescue it.

September 17: Former Fed Chairman Alan Greenspan said “we had a bubble in housing” and warns of “large double digit declines” in home values “larger than most people expect.”

September 18: The Fed lowers interest rates by half a point (0.5%) in an attempt to limit damage to the economy from the housing and credit crises.

October 1 – Credit Suisse: The bank says its results will be “adversely impacted” by the market turmoil, but it will remain profitable in the third quarter of 2007.

October 15 – Citigroup: The largest US bank by market value says third-quarter profit fell 57 percent due to losses, with net income down to $2.38 billion from $5.51 billion a year earlier including $6 B in write-downs.

October 15–17: A consortium of U.S. banks backed by the U.S. government announced a “super fund” of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the subprime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson said “the housing decline is still unfolding and I view it as the most significant risk to our economy. … The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.”

OCT. 24, 2007: Merrill Lynch announces an $8.4 billion quarterly loss, the largest in its history, thanks to write-downs on subprime mortgages.

October 19 – Wachovia: The fourth-largest US bank posts a 10 percent decline in third-quarter profit, to $1.69 billion from $1.88 billion a year earlier, having suffered $1.3 billion of writedowns resulting from credit market turmoil.

October 24 – Merrill Lynch: The financial services giant stuns Wall Street by reporting the biggest quarterly loss in its history after writing down $8.4 billion, mostly from bad investments related to risky subprime mortgages.

October 29 – Mitsubishi UFJ Financial Group Inc.: Japan’s largest bank says it will write down the value of subprime related investments by as much as 30 billion yen ($260 million) – six times more than previously announced.

October 30 – UBS: Swiss bank UBS reports a third-quarter pretax loss of 726 million Swiss francs ($624.8 million) after it took a charge of 4.2 billion francs on subprime-related losses in its fixed income investments.

November 1: Federal Reserve injects $41B into the money supply for banks to borrow at a low rate. The largest single expansion by the Fed since $50.35B on September 19, 2001.

November 4 – Citigroup: May write off $8 to $11 billion of the $55 B subprime mortgage portfolio, on top of a $6.5 billion write-down in its third quarter. Charles Prince steps down as CEO.

November 8 – Merrill Lynch: Its exposure to CDOs is now $15.82 billion or about $600 million more than what the company revealed in its third-quarter earnings release on October 24. The figure is larger because a hedge against potential loss was terminated recently after a dispute with a counterparty, which Merrill declined to name.

November 13 – Bank of America: Writes off $3 billion in subprime losses.

22 November – UK lender Kensington Mortgages withdraws its entire range of sub-prime mortgages because of market conditions. The Nationwide, the UK’s largest building society, benefits from being seen as a haven from troubled banks.

December 6: President Bush announced a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages (ARM). He also ask Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae.

December 19: Ratings for AAA Bond insurers AMBAC and MBIA are put on negative outlook by S&P.